Corporate Tax Planning December 2026
Q.1: Innovative Tech Solutions Pvt. Ltd., an Indian domestic company, has reported a net profit of Rs.60,00,000 for FY 2023-24 as per its annual accounts, but due to substantial deductions and incentives under the Income Tax Act, its taxable income under normal provisions is only Rs.15,00,000. The management is concerned that applying only regular tax provisions unfairly reduces the company's tax liability despite high book profits. The CFO must ensure compliance with tax law and maintain the company's social reputation for paying its fair share. The board requires a tax computation strategy that addresses these issues. How should the CFO apply the Minimum Alternate Tax (MAT) provisions under Section 115JB to ensure the company meets both statutory and ethical obligations? Illustrate the steps for calculating MAT and explain how applying this model achieves transparency and prevents tax avoidance.
Answer:
Introduction:
Minimum Alternate Tax (MAT) is an important provision of the Indian Income Tax Act, 1961, that provides that any company that reports significant book profits shall not be allowed to reduce its tax liability to a minimum by claiming various deductions, exemptions and incentives. As per the provisions of section 115JB, a company is required to calculate its tax liability both as per the normal provisions of the Income Tax Act and as per the MAT provisions, and pay the higher of the two. Normally, a company computes its tax liability as per the provisions of section 115JB and pays the same if it is higher than the normal tax liability. In the given case, Innovative Tech Solutions Pvt. Ltd. has declared a net profit of ₹60,00,000 in its books of account, while its taxable income as per the normal provisions of the Income Tax Act is only ₹15,00,000 due to significant deductions and incentives. The CFO should, therefore, calculate the company's book profit as per section 115JB, compute the applicable MAT and compare the resulting tax liability with the normal tax liability.
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Q.2 (A): An employee receives (a) salary arrears of Rs.3,60,000 in FY 2024-25 relating to FY 2021-22, and (b) basic salary and fully taxable allowances of Rs.15,00,000 in FY 2024-25. His total salary income for FY 2021-22 was Rs.8,40,000 (excluding the arrears). The income tax slabs (ignoring cess) for both years are as follows: Standard deduction for both years: Rs.50,000. Compute (a) tax payable for FY 2024-25 on salary income (including arrears), (b) tax that would have been payable for FY 2021-22 had the arrears been taxed in those years, and (c) relief allowable under section 89 for AY 2025-26, showing all calculation steps as per the old regime. Ignore all other incomes and deductions.
Answer:
Introduction:
Salary arrears received in subsequent year can increase employee's tax liability since normally these arrears are taxed in the year in which received. Section 89 of the Income-tax Act, 1961 provides relief in case of these arrears pertaining to earlier year causing additional tax burden. The relief basically compares the additional tax paid in year of receipt versus additional tax which would have occurred if the arrears were taxed in the year to which they pertain. Form 10E is used to do the prescribed calculation.
Q.2 (B): Mr. Satish, an individual investor, experienced the following in FY 2024-25: a short-term capital loss of Rs.1 lakh from stock sales, a long-term capital gain of Rs.70,000 from property sale, and business income of Rs.2 lakh. He also has a remaining long-term capital loss of Rs.50,000 from the previous year. He is uncertain about the order and scope of set-off and carry forward for his losses. Assess and justify the optimal order of set-off and carry forward of Mr. Satish's losses, referencing statutory priorities for intra-head and inter-head adjustments. Critically evaluate why capital loss set-offs are ring-fenced, and recommend the most strategic approach for minimizing his overall tax liability.
Answer:
Introduction:
Mr. Satish has three relevant items in FY 2024-25 viz. short-term capital loss (STCL) of ₹1,00,000, Long Term Capital Gain (LTCG) of ₹70,000 and business income of ₹2,00,000. In addition, Mr. Satish has a brought forward long-Term Capital Loss (LTCL) of ₹50,000. Priorities to adjust capital losses have been prescribed under the Income-tax Act. Capital losses cannot be freely adjusted against all types of incomes. Thus, it is critical to follow the correct sequence of intra-head set off, inter-head set off and carry-forward. By applying the provisions, it can be seen that Satish will be able to substantially reduce his taxable capital gains and the remaining eligible loss can be carried forward.